Foreign investors flock to the prominent Saudi economic conference

Thousands of financiers, founders and investors are set to head to the Saudi capital Riyadh to attend the eighth edition of the Kingdom’s Future Investment Initiative, the flagship economic conference at the heart of Vision 2030 – the multi-trillion-dollar plan to modernize and diversify Saudi Arabia. Arab economy.

Described by some attendees in past years as a mine of Saudi money, fund managers who spoke to CNBC this year painted a very different picture as the kingdom simultaneously supports more requirements for potential fundraisers and investors, while also facing a revenue crunch amid falling oil prices. And production.

“Without a doubt, attracting money from the Kingdom has become more competitive,” Omar Yacoub, a partner at US-based investment firm ABS Global, which manages nearly $8 billion in assets, told CNBC. “Everyone and anyone would kiss the rings, so to speak, in Riyadh.”

“Competition for capital has intensified, along with other factors such as the Saudis’ enduring bias to invest at home, as well as the broader dynamic of a tighter budget across the kingdom due to lower oil prices,” Yacoub said. “This means that investing internationally has become much more selective.”

As Saudi Arabia goes full steam ahead in its focus on domestic investment, it has imposed stricter requirements on foreigners coming to the kingdom to obtain capital from elsewhere. The kingdom's $925 billion sovereign wealth fund, the Public Investment Fund, saw its assets jump 29% to 2.87 trillion Saudi riyals ($765.2 billion) in 2023 — with domestic investment a key driver.

The recently updated Saudi investment law seeks to attract more foreign investment as well – and has set itself a lofty target of $100 billion in annual foreign direct investment by 2030. Currently, this number is still far from this target as investment has declined Foreign investments have averaged about $12 billion annually since Vision 2030 was announced in 2017.

“It's no longer about 'take our money and leave', it's about adding value,” said Fadi Arbid, co-founder and chief investment officer of Dubai-based investment management firm Amwal Capital Partners. “Value means recruiting, developing the asset management ecosystem, creating new products, bringing in talent, and investing in the Saudi capital markets as well. So it is a multi-faceted investment, not just a purely financial transaction. It goes beyond that.”

At the same time, the Kingdom is taking clear steps to reduce spending, as oil prices fall below the fiscal breakeven level and continue with crude oil production cuts agreed upon by OPEC+.

The breakeven oil price — what the kingdom needs a barrel of crude oil to cost in order to balance its government budget — has risen sharply as Saudi Arabia pumps trillions of dollars into its massive NEOM project.

The IMF's latest forecast in April set the break-even figure at $96.20 for 2024; That's up about 19% from a year earlier, and about 28% higher than the current price of a barrel of Brent crude, which was trading at about $72.75 as of Monday morning.

“I don’t think Saudi Arabia has the same means it had two years ago,” said one regional investor, who requested anonymity in order to speak freely. They added, however, that the kingdom “remains one of the very few countries that still has money to donate. It may be somewhat stalled today, but now it is more disciplined and more rational.”

Some fund managers with years of experience in the Gulf noted that it may be too little, too late for many investors making their first forays into the kingdom.

“This process should have started two, three or four years ago,” Arbid said. However, he added: “For those who come on the waiting list now, it doesn't mean they shouldn't make their placements – because it's a course, right? But now, I think they're more deliberate about it – they say you need to commit to the country.”

One example of this is the Kingdom's Headquarters Law, which came into effect on January 1, 2024, which requires foreign companies operating in the Gulf to base their Middle East headquarters in Riyadh if they want to enter into contracts with the Saudi government.

The glitzy conference, held at the luxurious Ritz-Carlton Riyadh, also takes place against the backdrop of a regional war and just over a year after Israel launched its war on Hamas in Gaza.

At the time, attacks between Israel and Iranian proxies, including Hezbollah and the Houthis in Yemen, had risen, with the Jewish state invading Lebanon in September. The region was in a state of tension awaiting the announced Israeli retaliation against Iran for its missile launches at Tel Aviv and other parts of the country on October 1.

Early Saturday, Israel bombed military sites in Iran, targeting missile manufacturing factories. The Israeli military later said it had completed “targeted” attacks in Iran, adding that it was ready to “carry out defensive and offensive action.”

Oil prices and the Saudi economy appear to have been largely unaffected so far, as they fell 4% early Monday following the weekend Israeli strike on Iran. The main reason for this may be the rapprochement agreement that the Kingdom signed with Iran, mediated by China, in March 2023.

“Saudi Arabia has done a great job recently in protecting itself from geopolitical events,” Arbid said.

This is also helped by the fact that local investors make up the majority of market participants, and local investor confidence is strong. The Tadawul All Share Index, the leading index in the Saudi stock market, rose 16.48% in the past year.

However, some analysts in the region warn that the expanding crises in the Middle East have the potential to cause further instability.

“The war has gradually escalated to the point where there is an actual regional war,” Aziz Al-Ghasyan, Middle East research director at the Observer Research Foundation, told CNBC. “The ongoing war is not only a geopolitical crisis, but its continuation would lead to further extremism in and around the region.”

“Attracting foreign direct investment and tourism, while keeping oil prices at the desired level, is key to keeping Saudi Arabia’s mega projects and diversification plans on track,” Al-Ghasyan said.

“This is of course complicated by regional warfare, so economics and security largely go hand in hand.”